Thank you for your post, sonjacoryat! I'm so glad to read of a family of five children AND a nursery school that have thrived on discipline as teaching instead of punishment!
Timeout, properly used, isn't punishment anyway--and it's not even a training method. As some posters to this forum have pointed out, it's a "time out" from behavior training. On a scale of the eight behavior correction methods identified by Karen Pryor in her classic behavior training manual Don't Shoot the Dog!, timeout is just a milder form of the method at the bottom of the list--just shoot the dog. Or banish the infidel. Or put the toddler in a playpen. Doesn't teach a thing, but it stops the misbehavior--temporarily or permanently.
Teaching children the correct behavior, as you did in your family and at the nursery school, is true discipline. My parents used both teaching and punishment with me; their teaching is what worked with me.